Should I be concerned and am I "upside down" in my mortgage?

$79k for a house?!? Wow. Well, you purchased this in 1999. How much do you currently owe on it? (Is this in the U.S.? Are you missing a “2” before that “7”?)

I would not be concerned. If you like where you live, and you can afford it, I recommend keep paying and love your home. The faster you pay it off, the less you really pay in the end. Most people walking away from their houses had ridiculous mortgages that ballooned or were second homes and investments that people have no real attachement to. Most people are still living in their homes paying their mortgages. Over time the prices will come back up.

Your $80k house will probably cost you over $200k if you pay over 30 years. Everyone with long mortgages pay so much more for their homes than they realize. I have lost $100k on my house, but now own it outright, so what I have actually paid is still less than the guy who bought something similar for $100k less. The real math is very different than how it appears on its face.

If rent is higher especially don’t move. You are getting a tax write off with your mortgage, assuming you live in the US.

Another thing, people own things upside down all the time. Cars are the best example, especially when purchased new.

Let’s get our terminology straight. Your “mortgage payment” did not go down due to property value assessments in your area.

Your primary mortgage provider offers you an escrow service into which you voluntarily pay for homeowner’s insurance, property taxes (and possibly PMI if you’re still financing more than 80% of your home’s purchase price).

So, your single check you send each month goes to your lender. It pays:
– principal and interest on your home’s mortgage
– escrow items, including taxes, insurance, etc.

Therefore, to be clear, your mortgage payment has not changed. Your escrow payment has decreased because you’re paying less in property taxes and possibly less for homeowner’s insurance, too.

After 13 years, I doubt you’re upside-down on your mortgage. The easy way to find out is to look up your payoff amount – either on your monthly mortgage statement, or call them – and compare that amount to the selling price of similar homes in your neighborhood. Even then, you’re not really upside-down until you actually try to sell it for less than you owe (not what you originally paid).

—

BTW, You’re under no obligation to use your mortgage lender’s escrow service. You can take responsibility to pay for those items yourself directly. It’s more of a burden on you to ensure you’ve saved up enough to pay them in full on their due dates, but it’s your option. The escrow service is free though and very convenient. You’re only missing out on some small potential interest if you were to place those funds into some interest-bearing financial instrument until you needed them… but that’s not usually worthwhile until you get into housing that’s quite a bit more expensive.

Market value only comes into play when you’re buying or selling. So if you don’t plan to sell don’t worry about it.

I wouldn’t be concerned in the least. You still have exactly what you paid for which is your own home. The decrease in property values is of no significance until you come to sell. Then you will want to buy another house and you will find its price has also come down. As long as you can keep up the payments on your house you have nothing to worry about.

@robmandu Sometimes the lender requires the property taxes be escrowed I think. If the borrower is a more risky borrower. After many years probably it is easy to get it changed though. For such a low property tax during a time where savings interest rates are so low, I would leave it alone. I paid my property taxes separately when I had a mortgage, but mine are pretty high, and I liked have my money for a longer period of time earning interest.

@redhen4 You should check to see if you are paying PMI? @robmandu mentioned it above. I vaguely remember a law being passed that mortgage companies now have to automatically get rid of PMI charges when the 20% equity is hit, but not sure. If you are paying it and should not be anymore that could save you some money.

Keep in mind the very real difference between “real value” and “assessed value”. Your assessed value is normally a fraction of “real value” (depending on how assessments are done in your taxing jurisdiction) and is generally not representative of what the place is worth. That assessment is performed and arrived at (to the extent that it can be) in order to keep most similar property owners on a more or less equal footing, and their taxes more or less equal, too, based on value.

Do not rely upon “assessed valuation” to price your home for sale! You’d do better off getting a rough idea of its value from an independent site such as Zillow.com or by hiring your own appraiser. (But there’s no sense in spending for that unless you’re trying to refinance.)

As usual, I should have read @robmandu‘s response first and saved myself some typing.

It sucks that if you needed or wanted to sell it you’d be in trouble, but assuming neither of those becomes an issue.. the only thing that sucks is that you didn’t buy your house now when it would be even cheaper.

If you like where you live, I see no problem there.

@JLeslie I didn’t think about that, the car analogy.
Yes I live in the US. Yes I refinanced for 2% lower interest rate and down to a 15 year mortgage so it will be paid for by the time I retire. And I will look into that PMI.
@tom_g , no not missing a 1! It is a 2 bed/2 bath half of a gemini home (two homes attached in the middle).
It did not matter to me that the bank said I could afford $130,000. I wanted something that was maybe $50 more per month than my rent at that time. Something I KNEW I could afford to pay.
@robmandu yes I understand the TAXES have reduced, therefore so did my monthly payment. Don’t care what you call it, it is a smaller payment! I do pay my homeowners insurance seperately now. But not taxes. I just got a refund from escrow-kinda like getting your tax refund for income tax.
Thanks for all the info!

Is that the true value of the house or the assessed tax value? They are often two different things. Depending on where you live, the assessed value can be 50% less than what you can sell the house for.

@redhen4 A 15 year mortgage is great! Since you have owned it since ‘99, that only saves you a few years from the original 30 year mortgage I am assuming you had, but the refinancing probably saved you quite a bit. I don’t really recommend paying extra every month, as it does not lower your required payment, but if you can save money and pay it off early you will likely save several thousand dollars.

The market value is not how you determine whether you are upside down or not. It only depends on the value as it relates to your mortgage balance. Our house is currently worth $150,000 but we owe $200,000 on the mortgage. That is upside down!

Our payments are well within our means, and we have lived here since 1990. We love our house. The only time it would matter at alll is if we had to sell our house, then we would be $50,000 short on paying off the existing loan, and it would be a disaster.

@JLeslie Great advice. The only thing I would add, and I may have missed this above, is that if you are maxing out your 401K then I would go ahead and pay off more each month. Or at least make an extra payment each year. I guess it just depends on each individual.

@missingbite I actually recommended against that above. Because it does not change the payment amount. I think it is better to save in your own account, earn some interest, and pay off the balance early when it makes sense. I don’t know how much savings the OP has, but having a big chunk of savings is a good idea, so I say make the normal payments, save save save, have money for rainy days when unexpected things happen, and then when a person has plenty of extra money that they are safe if they are unable to work for a 6 months even after paying off everything, then go for it. Once the mortgage is paid off the savings comes back really fast.

There are some people who are bad at saving, and the only way for them to shorten the loan is to pay extra each month, but those who are bad at saving probably don’t pay extra on the monthly payment either.

@redhen4 If you can make extra payments and still maintain enough extra savings to last 8–12 months if you were to lose your job, pay it off.

The little extra you will make on the money you save will not cover the expense of the interest you are paying on your mortgage. Once the mortgage is paid off you can put the extra money and the mortgage payment into savings or other investments, and you won’t have to worry about losing the house.

If you are happy with the house and don’t plan to move, as long as you can cover the payments then being upside down means nothing. Being upside down only hurts people who buy too much house or are trying to flip houses for a quick profit.

@JLeslie I agree with you last post 100%! Sounds like you have great money management skills. That is also basically what I was trying to say and you said it better.

@JLeslie We pay slightly more each month than the payment calls for and that amount is applied directly to the principal, not the P&I. We pay it off sooner and because there is less principal outstanding to pay interest on there is less interest. By doing this we are going to have our 15 year note paid off in a little less than 12 years. Am I misunderstanding your reasoning for not paying extra each month?

No @rojo you are correct. We did the same thing to pay ours off early. Anytime we had “extra” funds, we applied it to the principal.

@rojo My reasoning is, let’s say you only have $10k in the bank for a rainy day, and then you lose your job or get very ill God forbid, and can’t work for a while. Having paid extra on your mortgage every month does not lower your monthly payment requirement, so your monthly obligation is the same, and you will be going through your savings at whatever your bills require. If you had put the money in savings rather than the little extra to your mortgage company you would have $15k in your bank for the rainy day. If you have plenty of money either way, than no problem, do it however you want. My suggestion is usually more important for people who tend to live close to check to check, and building savings is important.

I am not saying my way is the right way, I am only explaining how I look at it. Once the person saves up, they can just pay off the whole balance early from their savings.

@JLeslie I see your point and understand now. Thank you.

I took a debt management class a few years ago. The instructor showed us that the best strategy for getting out of debt the fastest is to pay off the smallest debt first, then the next smallest debt, and so on, and so on, not the highest interest debt first as is normally believed.

For example, if you have the following debts:

$1000 at 5% interest
$2000 at 8% interest
$15000 at 9% interest <- car loan
$200000 at 5% interest <-mortgage

Your best strategy is to pay off the $1000 first as quickly as you can. Then the $2000 by combining the payments you used to make to the $1000 with the $2000 to pay off the $2000 sooner. Then the $15000 by throwing all the payments at it that you used make to the $1000 and $2000 debts.

I don’t know where the class materials are at the moment (this was about 2 or 3 years ago), but he did the math on the whiteboard and proved his case to the class.

@HungryGuy, in Dave Ramsey‘s financial advice classes Financial Peace University, he refers to that as the debt-snowball method. And he explains that while it might not necessarily save the most money in the final tally (versus paying off higher/compound interests first), the emotional satisfaction of building the “snowball” – that is, seeing debt payoff and the perception of building momentum as payments combine – provides very strong motivation which increases likelihood of success instead of quitting in frustration.